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TCG NEW YORK, INC. v. CITY OF WHITE PLAINS

December 20, 2000

TCG NEW YORK, INC., TC SYSTEMS, INC., AND TELEPORT COMMUNICATIONS D/B/A TCNY, PLAINTIFFS,
V.
CITY OF WHITE PLAINS, NEW YORK, DEFENDANT.



The opinion of the court was delivered by: Barrington D. Parker, Jr., District Judge.

MEMORANDUM DECISION AND ORDER

Plaintiffs TCG New York, Inc., TC Systems, Inc. and Teleport Communications d/b/a TCNY (collectively, "TCG" or "Plaintiffs") commenced this action against the City of White Plains (the "City" or "Defendant"), alleging violations of § 253 of the Telecommunications Act of 1996, 47 U.S.C. § 253 (the "TCA"), the Fourteenth Amendment of the United States Constitution and New York state law. The case was tried to the Court on a statement of stipulated facts (the "Stipulated Facts"). This Court's decision, based on those facts, follows.

BACKGROUND

Plaintiffs are all wholly-owned subsidiaries of Teleport Communications Group, a subsidiary of AT & T Corporation, and are in the business of providing telephone and telecommunications services. Plaintiff TC Systems, Inc. is organized to construct, own, use and maintain lines for telephone purposes within the State of New York under the New York Transportation Corporations Law. See N.Y. Transp. Corp. Law §§ 2, 25. Plaintiffs have been issued certificates of public convenience and necessity by the New York Public Service Commission ("PSC") for the provision of public telephone service in the State of New York. See N.Y. Pub. Serv. Law § 99.

The City is a municipal corporation and a political subdivision of the State of New York. Plaintiffs have sought the City's approval to construct telecommunications facilities and place other equipment in the City's rights-of-way, in particular new conduit networks as well as a fiber optic network of cables to run through new and preexisting conduits in the City.

I. The City Ordinance

On December 1, 1997, in response to Congress' enactment of the TCA in 1996, the City passed an ordinance setting forth the process by which new telecommunications carriers could obtain approval to place equipment in the City's rights-of-way (the "Ordinance"). See White Plains Municipal Code, Telecommunications Franchising and Licensing, Articles 1-3.

The Ordinance requires that a carrier submit a formal application to the Commissioner of Public Works and the Office of Corporation Counsel which must include, inter alia, information regarding the carrier, its affiliates, the equipment to be placed in the rights-of-way, the carrier's construction plans, its legal, financial, technical and other appropriate qualifications, and the financing for the proposed construction. See Ordinance §§ 2-3-01 & 02.

After the application is complete, the Ordinance requires that the carrier obtain a "franchise," or, in the case of carriers seeking only a limited use of the rights-of-way (e.g., installing less than 2500 feet of cable), a "revocable license." See Ordinance § 2-1. The parties are required to negotiate the terms of the franchise agreement or the revocable license, including compensation to the City, insurance, performance bonds, the City's right to inspect the premises, indemnification requirements, non-assignment clauses and other provisions. See Ordinance §§ 2-6, 2-9.

Once the carrier and City reach an agreement, the application is referred to the Common Council, which may reject the application or adopt it by a separate ordinance. See Ordinance § 2-1-04. In its review, the Common Council may consider a number of factors, including, inter alia, the carrier's ability to satisfy construction requirements and to maintain the City in good condition, the adequacy of the terms of the franchise agreement or license, the adequacy of the compensation to the City, legal, financial, technical and other qualifications of the carrier and any other factors as Council deems appropriate and in the public interest of the City. See Ordinance § 2-7.

II. Negotiation of the Franchise Agreement

The parties have had numerous discussions since early 1992 regarding the possible use of the City's rights-of-way in connection with TCG's plan to construct telecommunications facilities. TCG formally applied in 1992 and 1994, regularly communicating with City representatives in an attempt to obtain the City's consent.*fn1

In April 1998 — following the enactment of the Ordinance — TCG filed a formal application with the City for a revocable licence to install a relatively small amount of fiber optic cable and about 240 feet of underground conduit. Soon thereafter, TCG requested a full-blown franchise, and made a formal application for a franchise in February 1999.

Since TCG's request, the parties have engaged in vigorous negotiations, particularly over a May 1999 draft of the proposed franchise agreement, the terms of which were substantially based upon a "Model Franchise" which the City seeks to impose on all prospective telecommunications providers.*fn2 When it was clear that agreement could not be reached on the terms of that proposal, TCG filed this lawsuit on June 18, 1999, alleging violations of federal, state and constitutional law.

After the initiation of this lawsuit, the parties attempted to resolve their differences, and their negotiations resulted in an offer by the City of a new proposed franchise agreement (the "August Proposal") which sought to address some, but not all, of TCG's objections. As a result of further negotiations, the City offered additional modifications to the August Proposal, which were not sufficient to satisfy TCG.*fn3

The City's August Proposal would, inter alia, require TCG to pay an annual franchise fee to the City equal to five percent of gross revenues, require a guarantee of payment from its parent corporation, and would require that TCG build a limited amount of additional conduit without charge at the City's request. In addition, the August Proposal would reserve the right of the City to examine TCG's records, impose a most favored vendees status on behalf of the City, and mandate that upon termination of the agreement, TCG would be required to remove its facilities from public property at its own expense.

III. Treatment of Bell Atlantic

The current incumbent local exchange telephone carrier in the City is Bell Atlantic (and its predecessors-in-interest, NYNEX and New York Telephone). The City has had arrangements and understandings with Bell Atlantic since as far back as 1919, at which time Bell Atlantic agreed to provide the City with free conduit for certain municipal uses. Throughout the years, a symbiotic relationship existed between Bell Atlantic and the City, whereby Bell Atlantic would provide free conduit space in exchange for permission to use the City's public rights-of-way. Since 1954, Bell Atlantic has constructed an extensive underground conduit network in the downtown area of the City, which is more extensive than the underground facilities constructed by, or proposed to be constructed by, any other telecommunications provider in the City, including TCG. Of the thirty-one mile network of fiber optic cable and copper wire that make up the City's own network, twenty miles are in conduit owned by the City on aerial poles owned by Bell Atlantic and ConEd. The other eleven miles are run through underground conduit provided by Bell Atlantic at no cost to the City.

IV. TCG's Claims

TCG objects to the requirements that the City seeks to impose on several grounds. First, plaintiffs claim that provisions of the Ordinance and the August Proposal effectively prohibit TCG from providing telecommunications services, and regulate beyond the City's public rights-of-way, violating § 253(a), (b) and (c) of the TCA (Claims 1-4, 6-8, 11 and 12 of the Complaint). Second, TCG complains that Bell Atlantic's de facto exemption from the Ordinance, and from having to enter into a franchise agreement, is both non-competitive and discriminatory against TCG, in violation of § 253(c) of the TCA (Claim 5). Third, TCG claims that the Ordinance and the August Proposal violate the New York Transportation Corporations Law and the New York Public Service Law (Claims 9-12). Finally, TCG contends that the City has denied plaintiffs' due process rights under the Fourteenth Amendment (Claim 13).

DISCUSSION

I. The Telecommunications Act of 1996

The gravamen of plaintiffs' complaint is that the City's regulations set forth in the Ordinance and the August Proposal are preempted under § 253 of the TCA. Accordingly, a brief look at the history and structure of the TCA is helpful.

By adopting the TCA in 1996, Congress "fundamentally restructure[d] local telephone markets" by prohibiting states and local governments from "enforc[ing] laws that impede competition." AT&T Corp. v. Iowa Utilities Board, 525 U.S. 366, 371, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999). For nearly a century, the rationale behind the regulation of the telecommunications industry presumed that telephone monopolies would best provide reliable and universal service. See Cablevision of Boston, Inc. v. Public Improvement Commission of the City of Boston, 184 F.3d 88, 97 (1st Cir. 1999). The promulgation of the TCA, however, signaled the abandonment of that regulatory philosophy, as the federal statute now "requires [incumbent carriers] to provide other participants in the telecommunications market with competitive access to their networks and services." Id. As a result, competitive local exchange carriers, or CLECs, may now offer service in competition with incumbent local exchange carriers, or ILECs. See Id. at 271-73.

At the heart of the present dispute is the meaning and structure of § 253 of the TCA. That section, entitled "Removal of Barriers to Entry," states, in relevant part:

(a) In general — No state or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.
(b) State regulatory authority — Nothing in this section shall affect the ability of a State to impose, on a competitively neutral basis and consistent with section 254 of this section, requirements necessary to preserve and advance universal service, protect the public safety and welfare, ensure the continued quality of telecommunications services, and safeguard the rights of consumers.
(c) State and local government authority — Nothing in this section affects the authority of a State or local government to manage the public rights-of-way or to require fair and reasonable compensation from telecommunications providers, on a competitively neutral and nondiscriminatory basis, for use of public rights-of-way on a nondiscriminatory basis, if the compensation required is publicly disclosed by such government.
  The structure and language of § 253 embodies the balance between Congress' "new free market vision" and its recognition of the "continuing need for state and local governments to regulate telecommunications providers on grounds such as consumer protection and public safety." Cablevision, 184 F.3d at 98. Under § 253(a), state or local regulations may not prohibit or have the effect of prohibiting telecommunications services — if so, then the relevant regulations are preempted by that provision, unless they can come under the safe harbors set forth in § 253(b) or (c). See Cablevision, 184 F.3d at 98 (calling § 253(b) and (c) "safe harbors" to the prohibition of § 253(a)); Sprint Spectrum L.P. v. Mills, 65 F. Supp.2d 148, 159 (S.D.N.Y. 1999) ("Section 253 preempts all state and local regulations that prohibit or have the effect of prohibiting any company's ability to provide telecommunications services, unless such regulations fall within either of the statute's two "safe harbor" provisions.") (internal quotations and citations omitted); AT&T Communications of the Southwest, Inc. v. City of Dallas, 8 F. Supp.2d 582, 587 (N.D.Tex. 1998) (same).

§ 253(b) preserves the ability of a state to regulate telecommunications on the basis of the "public good." "Requirements necessary to preserve and advance universal service, protect the public safety and welfare, ensure the continued quality of telecommunications services, and safeguard the rights of consumers" are permissible so long as they are imposed on a competitively neutral basis. 47 U.S.C. § 253 (b). Conjointly, § 253(c) reserves the authority of state and local governments to regulate the public rights-of-way, as well as their right to charge "fair and reasonable compensation," so long as they are conducted on a competitively neutral and nondiscriminatory basis. 47 U.S.C. § 253 (c).

Plaintiffs contend that the City has violated § 253(b) by regulating "public good" issues in the Ordinance and the August Proposal. However, that sub-section only preserves certain state activities, and does not speak to local regulation. See Southwestern Bell Wireless, Inc. v. Johnson County Board of County Commissioners, 199 F.3d 1185, 1192 (10th Cir. 1999) ("section 253(b) applies only to state, not local, regulation"); City of Dallas v. Metropolitan Fiber Systems of Dallas, Inc., 98 civ. 2128, 2000 WL 198104, at *4 (N.D.Tex. Feb. 17, 2000) (agreeing that § 253(b) was not applicable to municipalities). To the extent TCG complains of local regulation, it should rely upon § 253(c). Therefore, as an initial matter, this Court dismisses plaintiff's claims based upon § 253(b) (Claims 6 and 8).*fn4

Accordingly, the question of whether the City's actions violate § 253 of the TCA involves a two-step analysis: (i) whether the City's regulations "prohibit or have the effect of prohibiting" the ability of TCG to provide telecommunications services under § 253(a), and (ii) if so, whether they are "saved" under § 253(c).

A. "Prohibit or Have the Effect of Prohibiting" under § 253(a) of the TCA

The parties fundamentally disagree over the scope of § 253(a); namely, the degree to which local actions are preempted under that section. Plaintiffs argue, citing, inter alia, City of Dallas, 8 F. Supp.2d at 591, BellSouth v. City of Coral Springs, 42 F. Supp.2d 1304, 1307 (S.D.Fla. 1999) and Bellsouth Telecommunications, Inc. v. Town of Palm Beach, 127 F. Supp.2d 1348, 1352 (S.D.Fla. 1999), that § 253(a) broadly preempts action by local municipalities, suggesting that only the narrow range of activities presented in § 253(c) are permissible. Under TCG's reading of the TCA, virtually all local action is preempted, unless, of course, it purports to manage rights-of-way on a non-discriminatory and competitively neutral basis under § 253(c).

However, defendant argues, citing legislative history and In re TCI Cablevision of Oakland County, Inc., Memorandum Opinion and Order, 1997 WL 580831, 12 F.C.C.R. 21396, at ¶ 101 (F.C.C. Sept. 19, 1997), for a narrower approach. The City contends that § 253(a) only preempts local action that actually prohibits a carrier from providing telecommunications services. Because nothing in the Ordinance or the City's treatment of TCG explicitly prevented TCG from providing telecommunications services in the City, the City argues that there is no violation of § 253(a). Accordingly, the question of whether local action manages the public rights-of-way under § 253(c), the City argues, does not arise since such action is not prohibitory under § 253(a). See In re TCI Cablevision, 12 F.C.C.R. 21396, at ¶ 101 ("Parties seeking preemption of a local legal requirement . . . must supply . . . credible and probative evidence that the challenged requirement falls within the proscription of section 253(a) without meeting the requirements of ¶ 253(b) and/or (c).").

Neither argument is completely compelling. On the one hand, the parameters of what is considered prohibitory under § 253(a) are not likely to be so broad as to preempt any and all local action. Congress could have achieved that result by simply preempting all local action in § 253(a) rather than specifically dealing only with actions which "prohibit or [have] the effect of prohibiting" telecommunications services. See 47 U.S.C. § 253 (a). On the other hand, the bar set by § 253(a) cannot be so high as to permit local municipalities to frustrate Congress' intent to foster a pro-competitive environment and remove local barriers to entry for telecommunications providers simply by clever statutory ...


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